The Price shows the Last close of the stock, based on NSE EOD data
Showing posts with label Moving Average. Show all posts
Showing posts with label Moving Average. Show all posts
Friday, May 28, 2010
Saturday, November 7, 2009
Random Observation
In this article, I want to focus on few stock charts which grabbed my attention. Take a look 
United Spirits = 52 week High
United Spirits just touched a new 52 week high. The stock is now interestingly poised for 1300-1400 target price provided broader market setup helps the stock….
Below you can see a weekly chart which shows how stock first broke down below 1000 levels in October last year and then struggled to move past it.
Source: ChartAlert [www.chartalert.com]
One thing we can say with higher probability - stock has absorbed all the supply around 1000 levels and now as long as stock holds 1000 - it is good for 1300.
Jain Irrigation: Somebody is buying the stock big time
Jain Irrigation is not a trade worthy stock. It more belongs to buy and hold category. Last week, when there was turbulence in the broader market - here’s one stock which saw huge spurt in volume but no price impact.
Source: ChartAlert [www.chartalert.com]
Considering the volume set-up, it is a stock to keep an eye on.
XL Telecom: Institutional Selling
There is always bear market somewhere. XL Telcom is getting hammered everyday. Yesterday, Morgan Stanley sold 150 000 shares.
Source: ChartAlert [www.chartalert.com]
The chart really looks like falling knife
This article is based on random observation of stock charts. I hope you found it useful. As always, please note this is not a trading recommendation.
20 Period Moving Average
Moving averages (MA) are one of the most popular and often-used technical indicators. It is easy to calculate, visualize and it works wonders when stocks and market are making steep moves.
Example: When markets are in momentum phase (strong uptrend/downtrend) - then 20 period moving average works the best. In uptrend, it acts as support and in downtrend, it acts as resistance.
Nifty weekly Chart = 20 week ma
Nifty has been in a very strong trend during last couple of years - 2008: downtrend; and in 2009 - uptrend. One line that has separated the two - 20 week ma. Have a look at the weekly chart below.
Source: ChartAlert [www.chartalert.com]
As you can see above, this week - Nifty has just been able to hold up 20 week ma. This is one of the reason - that next week - the level to watch is not the lows Nifty made last week but 20 week ma i.e. 4691. If next week, Nifty declines below 4691 again, [ok..give margin of error of 30 points i.e. 4660...] this market can go down to 200 dma, which means around 4000.
Bharti Telecom: Keep an eye on 20 day moving average
In case of Bharti Telecom, the fall has been so swift and sudden, that it will be more prudent to look at daily moving averages than weekly because it will take time for chart to catch up. So, let us look at the daily chart.
Source: ChartAlert [www.chartalert.com]
There are three things you can watch - first on left hand side - sharp recovery and how stock always traded above 20 dma; and then second - long sideways action - period when moving averages do not work; and then third - sudden momentum downtrend.
Just see how last week - Bharti stalled around 20 day ma. Ideally, this is the best place to go short on the stock from positional trend perspective with 3% stop loss above 20 day ma. The 20 dma as of now stands at 325.
Tuesday, June 9, 2009
How to Make Profit with Moving Averages ?
- Before Starting
- How to trade with Moving Averages
- Longer and Short Moving Averages
- Trading with Moving Average Crossovers
Before starting, you can have a look at this - Moving Average - What is it ?
How to trade with Moving Averages ?
Moving Averages are particulary useful in identifying the direction of an uptrend or downtrend of stocks and markets in general. They are based on the previous data and hence are generally referred to as lagging indicators which help us in locating the trend and following on in the trend . Since they do not allow you to predict the trend, you have to use other technical indicators in conjunction with them during trading.
Generally, the most common way to trade with the Moving averages is this - If the price crosses above the moving average, it means that a buying interest has set in - and thus indicates a buy signal. Similarly when the price crosses down the moving average, it means that a selling pressure has set in - thus indicates a sell signal.
Although it helps in indicating the current trend, it does not indicate for how long this trend would continue or when does the reverse trend begin. So traders should be cautious about this when using the moving averages for planning trades. It is also important to consider the volume for the security in question before trading. Sporadic movements with low volumes can generate erratic signals.
Example :
Look at this chart of Reliance capital shown below. The bold yellow line indicates the price and the thin blue line indicates the 9-day Simple Moving Average of the Close price of this stock.
As you can see from the above chart, when the price has crossed above the SMA, then it indicates that buying interest has set in. From then on, the stock price is on a rise with minor dips. The downtrend is indicated at the point after the price crosses down the MA line. This indicates a down trend and becomes a candidate for sell signal. As can be seen the prices come down in the downtrend.
Longer and shorter Moving Averages
Moving averages can be configured any period of your choice. The most common ones are 9 Day, 30 Days, 50 days and the 200 Day Moving averages. The longer the period, smoothing will be more. Thus in stocks which display a great deal of sharp glitches and breaks, longer moving averages would make sense, as smoothing would be better. Choosing short period moving averages in such cases would result in erratic signals.
Short trends are identified by short period MAs - like the 9 day and 15 day MAs. A medium term trend is given by the 30 - 50 day moving averages. 100 and 200 day moving averages can indicate the intermediate long term trends.
Trading with Moving average Crossovers
Plotting both long term and short term Moving averages for the same security can lead to crossovers. This can also indicate some trading signals in some cases. A buy signal is generally assumed if the short term moving average crosses over the long term moving average. Similarly a sell signal can be indicated when the short moving average falls down the long term moving average.
Example: Look at this chart of the stock ABB in the NSE. The bold yellow line signifies the price movement of the stock. The blue line is the 30 day EMA and the brown line is the 200 day EMA.
As can be seen from the chart, when the short term MA i.e the 30 day EMA (blue line) crosses over the long term MA ( 200 day EMA - brown line), then an uptrend is identified and thus a buy signal is generated.
As indicated earlier, MA can help in identifying trends and can give late trading signals. When used with other technical indicators, they can be very helpful in determining trading strategies.
Friday, May 22, 2009
Technical Indicator- Moving Average used in Indian
The concept of moving average in statistics is used to analyze the time series data. Moving averages simply measure the average price or exchange rate of a currency pair over a specific time frame. For example, if we take the closing prices of the last 10 days, add them together and divide the result by 10, we have created a 10-day simple moving average(SMA).
"A moving average is an average of a security's price over a specific time period"
In finance it is most often applied to stock prices, returns or trading volumes and used to smooth out short-term fluctuations, thus highlighting longer-term trends or cycles. The threshold between short-term and long-term depends on the application, and the parameters of the moving average will be set.
The moving average is one of the most versatile and widely used of all technical indicators and one of the oldest technical indicator. The moving average is calculated with a certain predefined period. The shorter the period is, the higher the probability of false signals is. The longer the period is, the weaker the sensibility of the moving average is.
PARAMETERS:
The most commonly used time frames for moving averages are 10, 20, 50, and 200 periods on a daily chart. As always, the longer the time frame, the more reliable the study. However shorter term moving averages will react more quickly to the market's movements and will provide earlier trading signals.
METHODS:
"The Simple Moving Average (SMA) indicator is calculated by summing the closing prices of the currency for a period of time and then dividing this total by the number of time periods"
"An exponential moving average (EMA) is calculated by combining a certain percentage of the current value with an inverse percentage of the previous value of the exponential moving average"
"The Double Exponential Moving Average (DEMA) is a combination of a single exponential moving average and a double exponential moving average. The advantage is that gives a reduced amount of lag time than either of the two separate moving averages alone"
CHARACTERSTICS:
- A moving average of equal length period will completely eliminate the periodic fluctuation
- A moving average of equal length will be linear if the series changes on the average by constant per time unit and its fluctuation are periodic.
- Even when the data show periodic fluctuation, a moving average of unequal length, no matter how small the difference is between the duration of periodicity of original series, and the length of the moving average, the moving average cannot completely remove the periodic variations in the original series. The averaging process then only tends to smooth out somewhat the short-run highs and lows
Thus, we can say that the moving average may constitute a satisfactory trend for a series that is basically linear and that is regular in duration and amplitude. However a method of moving average is very useful technique in analyzing a time series data. First of all, in all problems in which the trend of the time series is clearly not clear and in which we are concerned only with the general movement of the time series, whether it is a trend or a cycle or both, it is customary to study the smoothing behavior of the series by the use of moving average. Secondly, the characteristic of a moving average is the basis of the seasonal analysis.
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